8 ms·

Great analysis, although I don't completely agree with this statement: "GitHub, a company that, having raised $350 million in venture capital, was not going to

by mgc092 8y ago

Great analysis, although I don't completely agree with this statement: "GitHub, a company that, having raised $350 million in venture capital, was not going to make it as an independent entity." If it is referring to the fact that, in the crazy VC spiral of the startups world, once you have received such a big investment, a sale to a big corp is the only choice, then I sadly agree. But GitHub could have been an independent entity with a sustainable business, if they had not fallen into VC's startups trap. I have to agree with DHH here: https://twitter.com/dhh/status/1003611913924894720 https://twitter.com/dhh/status/1003611913924894720. We need more independent software companies instead of only having 5 big players.

sametmax 8y ago
Yes but given the opportunity, between retiring early with hundred of millions and keeping working for a few millions, most people will choose the former.
jillesvangurp 8y ago
Correct, github sold out to investors, which then owned them, which then sold them out to get an exit when it turned out the company was in no shape for an IPO which is the only reasonable other exit if you are looking for a 10x ROI on a company that burned through hundreds of millions. Investors were in this for a huge exit and they just got it. In fairness, MS bought a valuable social network of essentially the entire OSS and developer community. As an independent entity, Github would have had to evolve in a very different way and gone more aggressively after making money, fixing their cost structure, like most of their competitors like Atlassian, Gitlab, and other companies selling developer tools as a SAAS service. So, even though these are comparable companies with comparable offerings, the value proposition is very different. There is no way in hell Gitlab is worth anywhere near what MS just paid for Github. Being based in silicon valley means Github paid a premium for being there and burned through loads of cash paying for expensive developers, fancy office space, etc. Much cheaper if you are based elsewhere, have less emphasis on wanting to have every OSS project on your platform and more emphasis on selling tools to corporations. This is in a nutshell the strategy for Atlassian and Gitlab. Both also offer freemium layers for OSS but mostly their deal is upselling to their paid offerings. Growth that way is much slower. Though, I would say, Gitlab is now pretty well positioned to succeed where Github struggled.
- hsribei 8y ago
  Gitlab also took VC money and have an exit as their only option. Doubt they'll get as far as GitHub did though, and the option to just grow slowly into a solid independent business is off the table. Probably an acquihire with small return to investors.
  - indigochill 8y ago
    A big difference being Gitlab is open source and can be self-hosted, so you can still run Gitlab on your own terms even after (insert faceless corporate entity here) buys it. If you care about such things, anyway.
  - ameister14 8y ago
    Gitlab is really open about building to a 2020 IPO "We want to IPO in 2020, specifically on Wednesday November 18. 2020 is five years after the first people got stock options with 4 years of vesting. To IPO we need more than $100m in revenue. To achieve that we want to double Incremental Annual Contract Value (IACV) every year. We focus on an incremental number instead of growth of our Annual Recurring Revenue (ARR) because ARR growth is misleading. So far we achieved the goal of doubling IACV in 2013, 2014, 2015, 2016, and 2017."
    - hsribei 8y ago
      Great find! Here's the source link: https://about.gitlab.com/strategy/#sequence- https://about.gitlab.com/strategy/#sequence-
- coldcode 8y ago
  At where I work we use Github Enterprise, which costs way more than Gitlab Enterprise, is not scalable, and barely cares about enterprise customers like ourselves. Gitlab on the other hand is much cheaper, is highly scalable, runs in AWS, and is responsive to requests. Ultimately to make it as a business you need to provide what the customer wants and is willing to pay. Github never did.
baxtr 8y ago
I agree. But, there is this narrative in the VC world that the tech game is different than ordinary economy. In tech, you have to create a monopoly due to network effects. Brian Arthur has been the first to formulate that [1], and it has become SV folklore ever since. If you believe in that worldview, there is no space for a market with several players. The only goal must be to become the number 1 as fast as possible. See also “From zero to one” by Thiel. Needless to say that this is a depressing worldview, but either they right and then it won’t help to whine about it. Or they ain’t right, but they still gonna operate like it is true. Both sad. [1] http://a16z.com/2018/05/16/network-effects-positive-feedbacks-increasing-returns-complexity-silicon-valley-history-innovation/ http://a16z.com/2018/05/16/network-effects-positive-feedback...
dalbasal 8y ago
I agree with one caveat, I don't think it's the amount of money. I think it's valuations, and methods of funding/valuing companies. Zuck still owns 30% of fb, after (I assume) cashing out some shares. Early execs/investors would probably own 75% or more of the company if you exclude shares sold/cashed out (as opposed to dilution). This is because that FB never had to raise serious^ money. Put another way, it does not cost money to make a FB. This makes sense, FB is a "regular" website/app and those are cheap to make. You could say the best site wins, the most competent team. You could say it's a lottery. Either way, one site gets to be the social media site. That's valuable. Money is not required to get there. Compare this to TSLA, on the other extreme. Musk sold all the shares immediately. Then he borrowed as much as he could. This is because it takes money to build a TSLA. You need factories, parts, a supply chain... expensive. This means capital is being allocated very inefficienttly. FB could be the same fb (to users) @ a tiny fraction (maybe as low as 1%) of its market value. Twitter too. The money that is going into FB (and into shareholder pockets) does not enable FB to exist, help it do more things or benefit consumers/the economy. If FB's valuations was much lower than it is, FB could have done the exact same things that it did. If Tesla's valuation was much lower, they would have had less capital to invest and they'd be making fewer cars. A dollar that goes into FB makes FB shareholders richer, with no effect on anything else. A dollar invested into Tesla makes cars. Classical economics isn't supposed to work like this. The market is supposed to allocate capital where it is needed, at least in broad strokes. I think that we're dealing with 3 distinct things. (1)the monopoly-like nature of the digital communications economy is having hugely distortive effects. (2) Centralisation of capital into giant pools means money is flowing into giant "investment vehicles." Big investors = big funds = big companies. (3) we're in the middle of a capital bubble. Returns on doing business (selling stuff to people for money) are not as big as returns on investing (selling stuff to investors for shares and other, non-money money). 1 unit of "capital" is worth more today than yesterday. Ie inflation. This is squeezing out the "real" economic activity. ^scaled to market cap.
- vinceguidry 8y ago
  The social media industry is still nascent, it takes a lot more time than Facebook and Myspace have had to grow an entire market segment. Eventually we'll see a plurality of options and the ability to move between them with relative ease. But it's already easy to ignore Facebook, I didn't think that would happen for at least another decade. In fact, the only reason I'm still on it is because it maintains a network of former friends and contacts that no other service has been able to offer. Make no mistake, Facebook is struggling for relevance in an age where the next generation has already moved on to Snapchat and friends. I don't think any of them are going to emerge dominant, but if Facebook is smart, it'll use it's remaining heft to build a true platform instead of trying to keep going as an aggregator.

by mgc092 8y ago

sametmax 8y ago

Yes but given the opportunity, between retiring early with hundred of millions and keeping working for a few millions, most people will choose the former.

jillesvangurp 8y ago

Correct, github sold out to investors, which then owned them, which then sold them out to get an exit when it turned out the company was in no shape for an IPO which is the only reasonable other exit if you are looking for a 10x ROI on a company that burned through hundreds of millions. Investors were in this for a huge exit and they just got it. In fairness, MS bought a valuable social network of essentially the entire OSS and developer community. As an independent entity, Github would have had to evolve in a very different way and gone more aggressively after making money, fixing their cost structure, like most of their competitors like Atlassian, Gitlab, and other companies selling developer tools as a SAAS service. So, even though these are comparable companies with comparable offerings, the value proposition is very different. There is no way in hell Gitlab is worth anywhere near what MS just paid for Github. Being based in silicon valley means Github paid a premium for being there and burned through loads of cash paying for expensive developers, fancy office space, etc. Much cheaper if you are based elsewhere, have less emphasis on wanting to have every OSS project on your platform and more emphasis on selling tools to corporations. This is in a nutshell the strategy for Atlassian and Gitlab. Both also offer freemium layers for OSS but mostly their deal is upselling to their paid offerings. Growth that way is much slower. Though, I would say, Gitlab is now pretty well positioned to succeed where Github struggled.

hsribei 8y ago
Gitlab also took VC money and have an exit as their only option. Doubt they'll get as far as GitHub did though, and the option to just grow slowly into a solid independent business is off the table. Probably an acquihire with small return to investors.
- indigochill 8y ago
  A big difference being Gitlab is open source and can be self-hosted, so you can still run Gitlab on your own terms even after (insert faceless corporate entity here) buys it. If you care about such things, anyway.
- ameister14 8y ago
  Gitlab is really open about building to a 2020 IPO "We want to IPO in 2020, specifically on Wednesday November 18. 2020 is five years after the first people got stock options with 4 years of vesting. To IPO we need more than $100m in revenue. To achieve that we want to double Incremental Annual Contract Value (IACV) every year. We focus on an incremental number instead of growth of our Annual Recurring Revenue (ARR) because ARR growth is misleading. So far we achieved the goal of doubling IACV in 2013, 2014, 2015, 2016, and 2017."
  - hsribei 8y ago
    Great find! Here's the source link: https://about.gitlab.com/strategy/#sequence- https://about.gitlab.com/strategy/#sequence-
coldcode 8y ago
At where I work we use Github Enterprise, which costs way more than Gitlab Enterprise, is not scalable, and barely cares about enterprise customers like ourselves. Gitlab on the other hand is much cheaper, is highly scalable, runs in AWS, and is responsive to requests. Ultimately to make it as a business you need to provide what the customer wants and is willing to pay. Github never did.

baxtr 8y ago

I agree. But, there is this narrative in the VC world that the tech game is different than ordinary economy. In tech, you have to create a monopoly due to network effects. Brian Arthur has been the first to formulate that [1], and it has become SV folklore ever since. If you believe in that worldview, there is no space for a market with several players. The only goal must be to become the number 1 as fast as possible. See also “From zero to one” by Thiel. Needless to say that this is a depressing worldview, but either they right and then it won’t help to whine about it. Or they ain’t right, but they still gonna operate like it is true. Both sad. [1] http://a16z.com/2018/05/16/network-effects-positive-feedbacks-increasing-returns-complexity-silicon-valley-history-innovation/ http://a16z.com/2018/05/16/network-effects-positive-feedback...

dalbasal 8y ago

I agree with one caveat, I don't think it's the amount of money. I think it's valuations, and methods of funding/valuing companies. Zuck still owns 30% of fb, after (I assume) cashing out some shares. Early execs/investors would probably own 75% or more of the company if you exclude shares sold/cashed out (as opposed to dilution). This is because that FB never had to raise serious^ money. Put another way, it does not cost money to make a FB. This makes sense, FB is a "regular" website/app and those are cheap to make. You could say the best site wins, the most competent team. You could say it's a lottery. Either way, one site gets to be the social media site. That's valuable. Money is not required to get there. Compare this to TSLA, on the other extreme. Musk sold all the shares immediately. Then he borrowed as much as he could. This is because it takes money to build a TSLA. You need factories, parts, a supply chain... expensive. This means capital is being allocated very inefficienttly. FB could be the same fb (to users) @ a tiny fraction (maybe as low as 1%) of its market value. Twitter too. The money that is going into FB (and into shareholder pockets) does not enable FB to exist, help it do more things or benefit consumers/the economy. If FB's valuations was much lower than it is, FB could have done the exact same things that it did. If Tesla's valuation was much lower, they would have had less capital to invest and they'd be making fewer cars. A dollar that goes into FB makes FB shareholders richer, with no effect on anything else. A dollar invested into Tesla makes cars. Classical economics isn't supposed to work like this. The market is supposed to allocate capital where it is needed, at least in broad strokes. I think that we're dealing with 3 distinct things. (1)the monopoly-like nature of the digital communications economy is having hugely distortive effects. (2) Centralisation of capital into giant pools means money is flowing into giant "investment vehicles." Big investors = big funds = big companies. (3) we're in the middle of a capital bubble. Returns on doing business (selling stuff to people for money) are not as big as returns on investing (selling stuff to investors for shares and other, non-money money). 1 unit of "capital" is worth more today than yesterday. Ie inflation. This is squeezing out the "real" economic activity. ^scaled to market cap.

vinceguidry 8y ago
The social media industry is still nascent, it takes a lot more time than Facebook and Myspace have had to grow an entire market segment. Eventually we'll see a plurality of options and the ability to move between them with relative ease. But it's already easy to ignore Facebook, I didn't think that would happen for at least another decade. In fact, the only reason I'm still on it is because it maintains a network of former friends and contacts that no other service has been able to offer. Make no mistake, Facebook is struggling for relevance in an age where the next generation has already moved on to Snapchat and friends. I don't think any of them are going to emerge dominant, but if Facebook is smart, it'll use it's remaining heft to build a true platform instead of trying to keep going as an aggregator.